The insatiable hunt for yield will help snap up Europe\u2019s latest wave of debt sales.<\/p>\n
After Italy, Ireland and Slovenia racked up almost $200 billion of orders in their first syndicated bonds issues of the year, governments in the region including France and Belgium are slated to tap the market for another 30 billion euros ($36.8 billion) next week, according to Danske Bank A\/S.<\/p>\n
The offerings are likely to go down smoothly thanks largely to the European Central Bank\u2019s bond-buying backstop and liquidity injections. A near-record 3.5 trillion euros of spare cash is now sloshing around the economy, and it\u2019s encouraging investors to pile on sovereign debt holdings, even as governments borrow and spend more to shield their economies.<\/p>\n
\u201cThe expectation of significant fiscal stimulus, further supply of U.S. Treasuries and potentially higher rates has not rattled the market,\u201d wrote Jens Peter Sorensen, chief analyst at Danske Bank. \u201cWith the significant excess liquidity and negative rates, investors are \u2018chasing yield\u2019.\u201d<\/p>\n
He expects France and Belgium to sell 50- and 10-year bonds respectively next week through banks. While that\u2019s more expensive than auctions, it allows governments to raise very large sums quickly while diversifying their investor base.<\/p>\n
Euro-area governments will raise over 1 trillion euros of debt this year, according to ING Groep NV. The ECB\u2019s 1.85 trillion euro emergency bond-buying program is more than sufficient to buy it up even after accounting for redemptions, according to banks including JPMorgan Chase & Co.<\/p>\n
Adding to the buoyant demand for the securities is the growing pile of negative-yielding debt in Europe, which is pushing investors looking to escape sub-zero rates further out the yield curve. Citigroup Inc. strategists including Aman Bansal expect issuance of maturities longer than 15 years to make up a quarter of all sales in 2021, a similar level to last year.<\/p>\n
There\u2019s also a seasonal pattern that tends to explain the strong appetite for debt in the euro-area as the year kicks off, according to BofA Global Research strategists including Sphia Salim. \u201cTogether with higher issuance activity, investors also tend to be particularly active in asset allocation during the first phases of the year,\u201d they said.<\/p>\n
A sale of French 30-year debt was oversubscribed by the most since August last week, while demand for its Spanish peer rose to the highest since 2019 as investors chased yield. Italy\u2019s sale of 10-year bonds meanwhile racked up orders in excess of 105 billion euros, falling just short of a record set in June.<\/p>\n